Do You Have a Bonus Coming?

Now is the time of the year for family child care providers to see if parents in their program can give them a bonus. This bonus does not cost the parents anything.

How is this possible?

Many employers offer a dependent care assistance program that allows employee parents to set aside up to $5,000 of their salary each year for child care expenses. Parents do not pay federal or state income taxes on the money they set aside. This will save them hundreds of dollars in taxes.

These plans are also called flexible benefit plans or cafeteria plans.

Parents must decide how much of their salary to set aside before the year begins. If they don't spend it all on child care by the end of the year it will be kept by their employer.

Child care providers want to make sure that they receive all of the money parents set aside under this plan.

Here's how to get this money.

Calculate how much parents will pay you by the end of the year. If the amount is more than $5,000, there is no unspent money and there is nothing further you can do.

If the amount is less than $5,000, then say this to the parent: “I know that you participate on a dependent care plan at work. My records indicate that you will pay me approximately $4,800 by the end of the year. If you set aside more money in your plan than this amount, this unspent money will be kept by your employer. However, if you give me this money I will use it to increase the quality of my program.” You could buy some toys or take additional training.

For example, if the parent set aside $5,000, you want the parent to give you the extra $200.

If the parent agrees to give you the money, just add the extra amount to the parent’s next payment. Or you can spread it out over payments made until the end of the year. You could also submit a bill to a parent in January or February next year for the unspent money from this year, as long as you indicate on the bill that the payment is for some week of child care services this year. (Parents have until March 31 to submit a receipt to their employer for child care services delivered this year.)

There is nothing wrong with adding an extra amount onto your normal child care bill, or having the parent pay you in January for a week they already paid for in December.

The parent should submit a receipt to their employer for this money exactly the same way they submit all other payment receipts. If there is $200 in unspent money, and you regularly charge $175 a week, ask the parent to pay you $375 for care next week. Because this money is being spent on child care services, it should not be identified as a “bonus” or “charitable contribution.”

Some parents may want you to apply the unspent money to the care you provide the following year. In general, money set aside under these plans can only be spent on child care services delivered this year. However, employers can amend their dependent care plan to allow employees to use their money for child care services delivered through March 15th.

You won’t know if the deadline for parents to spend their money is December 31st or March 15th. Therefore, tell the parent how much they will have spent by the end of this year, and let them find out from their employer what is the deadline. If the deadline is March 15th there is much less likelihood they they will not have spent all the money they set aside.

You must report any extra money you receive as income, and you can deduct any items you purchase for your business with this money. I have heard from many child care providers who have received extra money from parents, ranging from $50 to $1,500.

Warning

Parents may ask you to sign a statement or form from their employer, so they can get reimbursed for the amounts they have paid for child care. Before you sign such a statement, make sure that you have already received payment for the amount listed on the statement. Sometimes parents will realize they will not spend all their money by the end of the year and try to pocket the difference. It is illegal for parents to keep any money they have set aside for child care. Do not agree to return some of this money to them.

You should give these parents, and all other parents, a receipt at the end of the year that states how much they paid you for child care services. Have the parent sign one copy of the receipt and keep it in your files.

Have you ever received extra dependent care money from parents?

Tom Copeland – www.tomcopelandblog.com

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